MERRILL LYNCH FUTURES v.

COURT OF APPEALS
G.R. No. 97816; 24 July 1992; Narvasa
FACTS:
ML FUTURES (a foreign corporation not licensed to do business in the PH) and Spouses Lara
entered into a "Futures Customer Agreement", in virtue of which the former agreed to act
as the Spouses Laras broker for the purchase and sale of future contracts in the U.S.
o Pursuant to the contract, orders to buy and sell futures contracts were transmitted to ML
FUTURES by the Spouses Lara "through the facilities of Merrill Lynch Philippines, Inc.
(MLPI), a Philippine corporation and a company servicing ML Futures' customers.
From the outset, Spouses Lara knew and was duly advised that MLPI was not a broker in
futures contracts, and that it did not have a license from the SEC to operate as a
commodity trading advisor (i.e., an entity which, not being a broker, furnishes advice on
commodity futures to persons who trade in futures contracts).
In line with the above mentioned agreement and through MLPI, Spouses Lara actively
traded in futures contracts, including "stock index futures" for 4 years or so, i.e., from 1983
to October, 1987, there being more or less regular accounting and corresponding
remittances of money (or crediting or debiting) made between the Spouses and ML
FUTURES.
Because of a loss of US $160,749.69 incurred in respect of 3 transactions involving "index
futures," and after setting this off against an amount of US $75,913.42 then owing by ML
FUTURES to Spouses Lara, the latter became indebted to ML FUTURES for the ensuing
balance of US $84,836.27, which the latter asked them to pay.
Spouses Lara however refused to pay this balance, alleging that the transactions were null
and void because MLPI had no license to operate as a commodity and/or financial futures
broker. They further averred that they had not doing business with ML Futures but with
another corporation MLPI.
As a consequence of such refusal, ML FUTURES filed a complaint with the RTC QC for the
recovery of a debt and interest thereon. Preliminary attachment issued Ex Parte and the
Spouses were duly served with Summons.
Spouses Lara then filed a Motion to Dismiss on the grounds that (1) ML FUTURES had no
legal capacity to sue and (2) the complaints state no cause of action.
RTC granted the Motion to Dismiss. CA affirmed the dismissal. ML FUTURES appealed to the
SC on certiorari.
ISSUES/HELD:
1. WON it was proper for the lower courts to grant the Motion to Dismiss NO.
2. WON ML Futures was doing business in the Philippines without license YES.
3. WON in light of the fact that the Laras were fully aware of its lack of license to
do business in the Philippines, and in relation to those transactions had made
payments to, and received money from it for several years the Lara Spouses are
estopped to impugn ML FUTURES capacity to sue them in the courts of the forum
YES.
RATIO:
1. WON it was proper for the lower courts to grant the Motion to Dismiss NO.
When such a ground is asserted in a Motion to Dismiss, the general rule governing
evidence on motions applies. However, there was no affidavit or deposition attached to the
Motion to Dismiss or thereafter offered as proof of the averments of their motion. The
motion was not even verified.
On the ground that the complaint states no cause of action, the test of the sufficiency of
the facts alleged in the complaint as constituting a cause of action is whether or not,
admitting the facts alleged, the court might render a valid judgment upon the same in
accordance with the prayer of the complaint. Indeed, it is an error for a judge to conduct

preliminary hearing and receive evidence on the affirmative defense of failure of the
complaint to state a cause of action.
2. WON ML FUTURES was doing business in the Philippines without license YES.
The facts on record adequately establish that ML FUTURES, operating in the US, had indeed
done business with the Lara Spouses in the Philippines over several years, had done so at
all times through MLPI, a corporation organized in this country, and had executed all these
transactions without ML FUTURES being licensed to so transact business here, and without
MLPI being authorized to operate as a commodity futures trading advisor.
o These are the factual findings of the RTC, CA and the SEC which denied MLPI's
application to operate as a commodity futures trading advisor, a denial subsequently
affirmed by the CA.
Further, the Laras did transact business with ML FUTURES through its agent corporation
organized in the Philippines, it being unnecessary to determine whether this domestic firm
was MLPI or Merrill Lynch Pierce Fenner & Smith (MLPI's alleged predecessor). The fact is
that ML FUTURES did deal with futures contracts in exchanges in the United States in behalf
and for the account of the Lara Spouses, and that on several occasions the latter received
account documents and money in connection with those transactions.
The last transaction executed by ML FUTURES in the Laras's behalf had resulted in a loss
amounting to US $160,749.69. In relation to this loss, ML FUTURES had credited the Laras
with the amount of US$75,913.42 which it (ML FUTURES) then admittedly owed the
spouses and thereafter sought to collect the balance, US$84,836.27, but the Laras had
refused to pay (for the reasons already above stated).
3. WON in light of the fact that the Laras were fully aware of its lack of license to
do business in the Philippines, and in relation to those transactions had made
payments to, and received money from it for several years the Lara Spouses are
estopped to impugn ML FUTURES capacity to sue them in the courts of the forum
YES.
The Laras received benefits generated by their business relations with ML FUTURES. Those
business relations, according to the Laras themselves, spanned a period of 7 years; and
they evidently found those relations to be of such profitability as warranted their
maintaining them for that not insignificant period of time; otherwise, it is reasonably certain
that they would have terminated their dealings with ML FUTURES much, much earlier.
In fact, even as regards their last transaction, in which the Laras allegedly suffered a loss in
the sum of US$160,749.69, the Laras nonetheless still received some monetary advantage,
for ML FUTURES credited them with the amount of US $75,913.42 then due to them, thus
reducing their debt to US $84,836.27.
Given these facts, and assuming that the Lara Spouses were aware from the outset that ML
FUTURES had no license to do business in this country and MLPI, no authority to act as
broker for it, it would appear quite inequitable for the Laras to evade payment of an
otherwise legitimate indebtedness due and owing to ML FUTURES upon the plea that it
should not have done business in this country in the first place, or that its agent in this
country, MLPI, had no license either to operate as a "commodity and/or financial futures
broker."
The general rule that in the absence of fraud of person who has contracted or otherwise
dealt with an association in such a way as to recognize and in effect admit its legal
existence as a corporate body is thereby estopped to deny its corporate existence in any
action leading out of or involving such contract or dealing, unless its existence is attacked
for causes which have arisen since making the contract or other dealing relied on as an
estoppel and this applies to foreign as well as domestic corporations.